Lakeshore is one of the original 10 community mental health agencies in Michigan

Lakeshore Regional Entity via Facebook

Lakeshore Regional Entity, which runs publicly funded mental health services in parts of West Michigan, is losing its Medicaid contract because financial losses have destabilized it.

Lakeshore Regional Entity, one of the original 10 community mental health agencies in Michigan, is losing its state Medicaid contract in West Michigan and will be replaced with a new managed care organization, officials with the state Department of Health and Human Services said.

The state notified Norton Shores-based Lakeshore in April of its intent to cancel its contract, based on several factors, including five years of financial deficits and failure to come up with a plan to erase a $16 million structural deficit, the state said.

"Michigan residents deserve access to behavioral health services that are accessible, affordable and effective, and Michigan taxpayers deserve a system that manages our tax dollars efficiently," MDHHS Director Robert Gordon said in a statement. "Following many years of poor performance and financial mismanagement that stands out among PIHPs, we believe it is clear that LRE is not the right entity to deliver services for West Michigan residents in need. The success of our public system depends on effective management. With a new approach, building on LRE's recent work with Beacon, the region can achieve better outcomes for people while operating on a sustainable basis."

Under the state's current mental health payment system, the MDHHS makes monthly per-person Medicaid payments to PIHPs in the 10 regions. Southeast Michigan has three regional PIHPs — one each in Wayne, Oakland and Macomb counties.

The PIHPs subcontract with a variety of providers and community mental health agencies to deliver services that include treatment for autism, developmental issues, substance abuse and serious mental health disorders. Dozens of community mental health agencies, which serve all 83 counties, also receive general fund dollars for non-Medicaid-covered services.

Nine of 10 PIHPs are facing a combined $92.8 million in structural deficits on revenue of $2.8 billion, according to a December report by the Michigan Association of Health Plans, the trade organization for the state's managed-care companies.

Over the past three years, Michigan's managed-care companies have pushed to speed up the privatization of the state's $2.8 billion Medicaid behavioral health system, pointing to financial losses the state's public mental health authorities reported in November.

But mental health officials have complained the state has underfunded Medicaid mental health services. That has drained financial reserves, they say, leading to the deficits that have forced service cuts to patients and reimbursement reductions to providers.

The state has requested supplemental funding from the state Legislature for 2019, but that wouldn't be enough to address Lakeshore's problems.

MDHHS said it will sign a temporary contract with for-profit Beacon Health Options, which has been working with Lakeshore to shore up its finances.

The Community Mental Health Association of Michigan called for the state to change gears on its efforts to replace Lakeshore. The association said the decision by the state creates unnecessary "chaos and conflict."

"This proposal eliminates local public governance of the public behavioral health system — one of the foundations of Michigan's nationally recognized behavioral health system for the past 50 years — and replaces it with a state-appointed advisory group," CMHAM said in its statement.

"The contention that management weakness is the cause of the fiscal distress of Lakeshore is simply untrue, as underscored by the facts."

Robert Sheehan, CEO of the Community Mental Health Association, said underfunding has led to problems for many PIHPs. He said Lakeshore and others facing the most dire fiscal crises have received cuts or modest increases in state funding the past five years.

For example, if Lakeshore had received the same level of rate increases as those PIHPs not suffering such fiscal distress, Lakeshore's revenue in fiscal 2018 would have been $49 million greater.

"For the state to propose the termination of its contract with Lakeshore, eliminating the local publicly governed managed care body for the region's public mental health system — as a result the state's underfunding of that regional entity is fiscally, ethically, and politically ironic — an irony not lost on the stakeholders to this system," the association said.